Q Search this course ivity: Project risk analysis The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions! Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,250 0.2 $0 0.6 $7,000 0.6 $7,000 0.2 $7,750 750 0.2 $18,000 BPC has decided to evaluate the riskier project at 12% and the less-risky project at 10%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. SA $7,750 0.2 the X Open spreadsheet a. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A: $ Project B: S A BRE Project B's standard deviation (p) is $5,775.81 and its coeffident of variation (CV) is 0.74. What are the values of (x) and (CW)? Round your answer to two decimal places de CA-CLARERS S EEMS 6. Based on the risk-adjusted NPVs, which project should BPC choose? B AS ANEN c. If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision? AN P If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that Influence your risk assessment? LORD LOGO ANNARS Check My Work R eset Problem Back x Excel template - Saved File Home Insert Data Review View Help 324 Tell me what you want to do BATAAN LED BA 1 Project risk analysis BC 2 3 4 5 Costs, Projects A and B Expected life of projects in years) Difference between Project A CFS NE S Probability 2 0. .6 .2 $7,000.00 3 $750.00 POPOMAGE Cash Flows $6,250.00 $7,000.00 $7,750.00 7 Project A 8 9 10 0 11 0 12 13 Project B: 14 15 16 17 RON Probability Cash Flows $0.00 $7,000.00 $18,000.00 18 19 20 Discount rate, risky project Discount rate, less risky project 12.00% 10.00% Formulas 22 Calculation of Expected CF, SD and CV: 23 Project A: 24 Expected annual cash flow 25 Standard deviation (SD) 26 Coefficient of variation (CV) PNA WNA 2 Duo Sheet1 Saved to engage Tell me what you want to do B24 28 29 30 31 Project B: Expected annual cash flow Standard deviation (SD) Coefficient of variation (CV) $9,706.67 #DIV/OI 33 Which project is riskler? Project Arisk-adjusted discount rate Project Brisk-adjusted discount rate 35 WNA UNIA WNA Calculation of Risk-Adjusted NPVs: NPVA NPVA Which project should be chosen? #NA #NA #NA Saved to engage